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Investors face £60m loss after property firm liquidation

Investors could be facing losses of up to £60m following the liquidation of a specialist property investment firm.

A liquidator has been appointed to property management firm Arck LLP following an application by investors to freeze the firm’s assets last December. Two individuals were arrested and bailed earlier this month following allegations of fraud related to the firm.

Arck operated a scheme where funds obtained through IFAs, property agents and accountants were used to facilitate foreign property developments. Many investors used their pension savings to invest in the scheme through Sipp firm HD Sipp.

The initial complaint against Arck which triggered the court action involves 135 people with investments totalling £4.16m in the company’s Arck Estrella and Paradise Beach property developments. The complaint was lodged after Arck failed to repay the funds to investors on time.

Arck director Kathryn Clark is also listed as an administrator at HD Sipp. Richard Clay, another Arck director, was previously a director at Nottingham Rugby Club. Court documents obtained by Money Marketing show Arck bought HD Sipp’s offices in Nottingham for £900,000 in 2006.

HD Sipp could not be reached for comment.

A Nottinghamshire Police spokesman says: “Nottinghamshire Police can confirm it is investigating allegations of fraud related to the activities of Arck LLP. Two people, a 47-year-old man and a 49-year-old woman, were arrested in connection with this inquiry in Nottinghamshire on March 2. They have been interviewed by detectives and bailed pending further enquiries.”

The FSA varied HD Sipp’s permissions on March 2 preventing the firm from accepting new regulated business.

Court documents relating to Arck’s liquidation refer to bank statements which suggested the Arck trust account had a balance of just £25.90 as at September 30, 2011.

The court documents also state that Clay provided a bank statement containing inaccurate information to an investor prior to the freezing order being obtained.

Regulatory Legal is acting on behalf of 106 Arck investors and their IFAs. Director Gareth Fatchett says the initial £4.16m complaint is the “tip of the iceberg”, with an estimated 1,000 investors affected, with assets totalling £60m.

He says: “The bulk of investments went via regulated companies which inevitably will lead to a significant call on the Financial Services Compensation Scheme if these firms go bust. Our action has uncovered evidence which we felt compelled to refer to the police.”

Money Marketing understands the arrests follow a joint investigation by the FSA and the Serious Fraud Office.

The FSA and the SFO declined to comment.

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Comments

There are 19 comments at the moment, we would love to hear your opinion too.

  1. Too little too late again FSA. I cannot believe what these various fraudsters are getting away It seems that over the years the small IFA has been diligently getting on with looking afters his clients under the microscope of the FSA TCF initiative etc whilst the large organisations have been given free rein to plunder the unsuspecting public. And who is going to have to pay for this oversight? Yep, it`s us again!

  2. That will all be the fault of the IFAs then.

    Accountants and property agents will not be blamed by their regulators or arbitration schemes so there is only one target left.

  3. One more FSCS additional levy to come ?

  4. Why would any sensible IFA invest client’s money in such a scheme? Why does the FSA not monitor such schemes more actively? Why have we got to foot the bill?

  5. When will all this stop? It appears that many fraudsters will target a structure where the FSCS can pay their victims compensation, then claiming their victims eventually suffer no loss, and hope to get away with it. This must change. Hows about no compensation for unauthorised investments, and a buyer beware flag. After all there is no compensation for buyers of shares if the firm goes bust. Why should I pay for fraud from unregulated schemes? The property companies and Accountants who sold these schemes should be fined, and made to do community service for aiding and abetting a fraud. No defence saying I did not understand the scheme, and not trained anyway. Let them do 100 hours sweeping up rubbish from the streets, but not together, they may sweep each other up!

  6. Single tax rate system would end all this nonsense. Why would anyone think this was a “good investment”. Another fiasco.

  7. I reported this to the FSA (in person at Canary Wharf, in writing and on TAPED interview with a solicitor present, to HMRC, to the Pensions Regulator, SOCA, the Serious Fraud Office, the Police and Companies Investigation Bureau starting in June 2008, continuing into 2009. If action had been taken then it could have saved more investors.

  8. Again – yet more irresponsible behaviour that leaves us all picking up the pieces.

    What is desperately needed is for a separate category to be created for the compensation levies to cover small businesses only who invariably avoid such dodgy schemes – this would then protect us from the bigger crooks and control our liabilities to just what we are responsible for and not the rest of the world’s problems !!

  9. Katrina
    I hope youve retained proof of this. I dont see why ANY firms that fund the FSCS should have to contribute to any claims for investments made AFTER the authorities were made aware of the problem, which now seems to be 4 years ago at least.
    The real (journalist?) investigation should be made into what exactly the regulatory authorities did and how quickly (or not!) they did it. Who was in charge of the FSA and the relevant depts at the time? Shouldnt they also be culpable? Any individuals at fault within the regulator should have the same long stop protection for their actions as we do, ie nothing.

  10. Looks like we are going to get shafted again. It’s like everything else the good guys get left clearly up all the pooh! deposited by the mongrels of our industry. How on earth an IFA dealing with members of the general public can believe rubbish like this is a place for their clients’ money doesn’t deserve to hold a licence to trade. We had an introducer in trying to shovel property developments in the WIndies, green oil, Argentinian farm land, Australian mining exploration and other such garbage and was genuinely nonplussed when I showed him the door. Want to hear some real rubbish straight from the Arck web site…..” It is not the ship so much as the skilled sailing that assures the prosperous voyage” ….I kid you not.

  11. man on the moon 21st March 2012 at 11:36 am

    There well be similar cases to arise.

    Sell the idea of a Tropical Idyll with palm trees, cocktails and sunsets. Stick your pension funds and other funds in and then watch while it builds up.

    The most recent one I came across was Fractional Ownership in the Carribean for holiday properties. Oddly enough the Agents claimed that quite a number of so called quality SIPP Providers were ok with this.

    Think I will just stick to Cape Verde and Brazil myself.

    Not for the faint hearted.

  12. An interesting case that raises a number of issues that are only being partially addressed. If the industry wants to be seen to be professional the issues need to be fully address.
    If, what Katrina Stamp says is correct (and I have no reason to believe otherwise) then there is a need for an immediate enquiry about the behaviour of the organisations involved, especially that of the FSA, in view of the rather bizarre statement recently by Ms McDermott. It is inequitable to be threatening grievous bodily harm for failing to whistle blow if those who could take action are blatantly failing to do so.
    There are two weaknesses in the current situation. Firstly, there is no institution in the UK that can hold the relevant bodies to account for their inaction. That needs to be changed.
    Secondly, there is no public outlet for such whistle blowing. Katrina now makes public the matter 4 years later, but who knew about the whistle blowing before the current declaration. How can an industry put consistent pressure on the relevant authorities to provide a reasonable response if it is, in general, not aware of the whistle blowing. This is not a simple matter for people can whistle blow maliciously. Nevertheless there needs to be a public record to maintain pressure on the relevant authorities.
    Turning back to the investment itself, one has to distinguish between genuine, entrepreneurial investment opportunities, and rip offs. This is not necessarily an easy distinction to make. One way is to provide a far better process of due diligence, that is then put in the public domaine. And that due diligence could include a simple rating process – including the “do not touch with a bargepole” category. This can apply to good options that are badly structured. In this manner the adviser industry can apply a pressure on the quality of the investment industry, and thus help their own image of professionalism.
    It is noted that there are investigations about fraud in the Arck case. There have been a number of failures in the last few years and in the majority of them there have been allegations of impropriety. There is an necessary implication that the business structure was badly flawed and the FSA oversight was badly flawed.
    Failures and fraud are a natural, if unacceptable, part of commercial life. Attention needs to be given to minimise these occurrences. We cannot rely on the bureaucratic ideology of Canary wharf to provide forward thinking on these matters. It is important for advisers to lead on these professional innovations in order to drag the FSA into the current century.
    It is easy to criticise. It is now time to take the more difficult ground and suggest workable solutions to reduce problems.

  13. Come on everyone – wait for the facts.
    Vultures are circling and the chat is starting which, as in other affairs, will only get in the way and hinder treating all customers of this company fairly. I don’t imagine Gareth Fatchet’s fortunes are linked to a fair outcome for all.
    We look forward to Katrina’s formal and public disclosure of the facts she stated. I am assuming you are not the Katrina of Integrity infamy? Please excuse the inference if you are not. That was another example of a shambles but where the facts have now been established.
    I have no desire to defend these people if they have done wrong but I am really tired of hearing from people who judge and predict outcomes without knowing and stating the true facts any judgement is based on. Such chitter chatter has caused massive additional cost and delay to sorting out similar situations in the past.

  14. In order to give perspective to the current failure it would be interesting to hear the reasons for Ms Stamp’s decision to whistle blow and why they came about.
    Facts generally help learning.

  15. Glen, Youre right. Workable solutions are needed, although I DO think that ought to be part of the regulators remit.
    However, I have previously argued as follows.
    In the interests of transparency, fairness, and customer choice, the compensation system should offer a choice of products inside and outside the compensation framework. To be approved as being part of it, products must submit their offering for approval to whichever regulatory expert body is set up for that purpose – instant centralised due diligence in which all can place some confidence at least. Then each “product” would pay a compensation levy for each sale; eg a bank deposit account might need to pay eg 0.x% of each pound held on deposit. If a client chooses to buy a higher paying account OUTSIDE the compensation regime then they can choose to do so with some default protection built in no doubt. All product levies paid at point of sale are worked out by the same “clever” (hopefully!) people who assess each scheme for eligibility for inclusion as they have the info required. Anything NOT in the compensation scheme would therefore stick out like a sore thumb; product providers have choice to be in it, clients have choice to buy them, advisers can chose to use them or not etc. Best thing is, less claims (initial due diligence plus clear understanding that certain schmes ARENT included) plus a pre funded pot that means no nasty funding shocks for anyone. The pot could even be invested in cheap govt debt instruments to help the country borrow cheaply!

  16. Doubtless the FSA will decree Arck to have been an intermediary though, as usual, with:-

    1. no explanation as to by what line of reasoning or

    2. why it failed to act (much) earlier on information brought to its attention or

    3. any right of challenge on the part of those who’ll be forced to pick up the tab, namely us.

    Yet Hector Sants would have us believe that the FSA has no prejudicial agenda against small IFA’s and Mark Hoban would have us believe that the FSA is “already quite accountable”. Sickening. As the saying goes: It’s not paranoia when they’re really out to get you and by God is the FSA ever out to get us.

  17. Doesn’t look like the FSA regulated ARCK so they probably won’t do/couldn’t have done much.

    According to the FSA register Ms Stamp’s firm was being threatened with FSA fines at the time – interesting context.

  18. Peter Rowbottom 25th March 2012 at 7:37 pm

    Does anybody know what the situation is here? Have investors lost everything? Also, does anybody know how to find out who the liquidator is, I can’t get any information from Arck LLP!!!

  19. Sally Schofield 28th March 2012 at 11:18 am

    They may well lose everything if the firm gets liquidated. Upcoming court case perhaps not really treating ALL clients fairly. Watch out everyone. Be very careful which mast you nail your colours to – you could be doing everyone a disservice, including yourself.
    And Katrina – remember, people in glasshouses

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